Cresco Labs (CRLBF +5.70%) entered 2021 with a lot of momentum. Its shares soared 44% last year. But after rising over 70% year to date by early February, the stock has given up much of those gains in recent weeks.
The multi-state cannabis operator announced its fourth-quarter results before the market opened on Thursday. Cresco's shares fell close to 5% in early trading. Here are the highlights from the company's Q4 update.
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By the numbers
Cresco Labs reported revenue in the fourth quarter of $162.3 million, nearly tripling year over year and up 6% quarter over quarter. The result also narrowly beat the consensus analyst estimate of $161.4 million.
The company announced a net loss of $23.4 million in the fourth quarter. While this was better than the net loss of $45.2 million in the prior-year period, it reflected deterioration from the profit of $4.9 million posted in the third quarter of 2020.
Cresco generated Q4 adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) of $50 million. This result was a huge improvement of adjusted EBITDA of $2.9 million in the prior-year period and was 8% higher quarter over quarter.
The cannabis operator ended the fourth quarter with cash and cash equivalents of $136.3 million.
Behind the numbers
Cresco's year-over-year comparisons looked fantastic. However, the company completed the acquisition of Origin House in January 2020. Much of the improvement compared to the prior-year period came from this acquisition. Quarter-over-quarter comparisons reveal more about how Cresco actually performed in Q4.
The good news is that Cresco's sales grew solidly from the previous quarter. Even better, the company's gross profit margin improved.
Cresco reported a gross profit margin of 59% in Q4 compared to 55.2% in the third quarter. However, the increase wasn't quite as great on an operational basis. Factoring in various adjustments, including the net impact of the fair value of biological assets, the company's operating gross profit margin in Q4 was 54.5%, up from 52.6% in Q3.
While Cresco's adjusted EBITDA improved from the previous quarter, its bottom line worsened. A key reason behind this deterioration was that the company incurred much higher costs related to acquisitions, expansion, relaunch, and rebranding.
Looking ahead
Cresco Labs co-founder and CEO Charles Bachtell said: "In 2021, cultivation expansions are under way and we are executing accretive M&A [mergers and acquisitions] as we repeat our playbook in more states. Our best-in-class execution was on display in 2020 and it's what you can expect from Cresco Labs for years to come."
The company's acquisitions are sure to be a primary growth driver going forward. In January, Cresco announced plans to acquire Bluma Wellness to enter the medical cannabis market in Florida. It also completed the acquisitions of four Ohio medical cannabis dispensaries in February.
Cresco could soon have even better growth prospects. The state of New York appears headed toward legalizing recreational marijuana. Cresco already operates medical cannabis dispensaries in the state and would almost certainly quickly move into the recreational market as well.
